Recently, both SatoshiDice and bitZino released their financials. If these self-reported earnings are to be trusted (and the companies say they are, given that a Bitcoin block chain can be read by anyone), then running a Bitcoin-based casino yields a tidy profit.

“These tiny startups are hitting some major online casino pain points. They're crushing it on those fronts and as an entrepreneur, I think that's rad—they are leveraging a disruptive technology to try and kick a large-scale industry in the balls,” said Peter Vessenes, the CEO of CoinLab, a Bitcoin-based business, which got $500,000 of venture capital last year.

"You can't ask for a more perfect payment system!"

SatoshiDice, which has servers based in Ireland, is a pseudo-random number generator game where players choose a number and then bet on the likelihood that a “rolled number” is greater than the one they’ve selected. If the rolled number is greater, they win. The house has a 1.9 percent edge—which is where the profit comes in.

The online dice game has returned profits to the tune of ฿33,310 ($596,231) during 2012—an average actual profit of ฿135.96 ($2,416) per day from May through December 2012. During that period, players put down a total of 2,349,882 bets. That’s minuscule by Las Vegas standards, but it's still respectable.

bitZino, by contrast, released its figures in early January and seems to be doing a decent pace of business, too (bitZino's bookkeeping only measures June 9 to December 31, 2012). The online casino offers online poker, blackjack, craps, and roulette—did not publish a profit and loss statement. bitZino did say it had paid out ฿28,986 ($495,000)—and that 3.2 million wagers were made during H2 2012.

The company’s founder, Larry Taad, noted on his site that most of his users “don’t keep a balance on our site,” preferring to cash out and be paid instantly. "This type of behavior just wouldn't be possible with any other payment solution."

In an e-mail to Ars, Taad added this was a “unique benefit” of Bitcoin.

“Users don't have to trust us with their funds any longer than necessary,” he wrote. “If you compare this to traditional online casinos, which can take weeks to send you your winnings, the benefit is obvious. And of course, it goes both ways: it is also extremely easy and quick for users to add funds back to our site. Frictionless, non-reversible, zero-fraud payments—you can't ask for a more perfect payment system!”

Still, Taad said his company was not profitable in 2012, but he "anticipates a profitable 2013 as we continue to grow."

While Taad does pay for “all business expenses” in Bitcoin, including Web hosting and coffee, he notes he is sensitive to “risk management.”

“Even though I am extremely bullish on the long-term outlook of Bitcoin, I still keep my assets properly diversified,” he added.

Unfinished business

There's no denying Bitcoin is experiencing some level of current success. “I think it bodes very well for Bitcoin casino operators that they are turning a profit and that people seem to be happy with them,” Jerry Brito, senior research fellow at the Mercatus Center at George Mason University, told Ars.

On top of that, some companies (like WordPress) are even starting to accept Bitcoin despite its questionable legality that's still off-putting to many investors and users. Despite the progress however, Bitcoin observers say the digital currency has a long way to go before it becomes mainstream.

“As long as the legal status of Bitcoin is unclear, I do not think this will have an impact beyond keeping the digital currency alive,” said Irfan Kanat, a doctoral student who has studied virtual currencies (including Bitcoin) while pursuing his degree in information systems at the W. P. Carey School of Business at Arizona State University.

One thing I hear all the time is "Bitcoins questionable legality." There is no questions about it - it is legal. What is questionable is if some governments will decide to call it a threat and pass laws that make it illegal.

There will be laws passed about it if and when it drifts up into the radar. What will they be? One hopes that they will limited to the kind where a business registered for tax purposes will have to log their payment addresses with the tax office. That might make it's anonymity somewhat more pseudo, though.

>SatoshiDice, which has servers based in Ireland, is a pseudo-random number generator game where players choose a number and then bet on the likelihood that a “rolled number” is greater than the one they’ve selected. If the rolled number is greater, then they win. The house has a 1.9 percent edge—which is where the profit comes in.

Gambling games are boring in general (except for Poker) but this sounds even more boring than normal. Can you imagine playing this when money wasn't on the line? It wouldn't be considered a game.

It will be interesting to see how US-based winners will represent their ฿ winnings/losses on their 1040, and if the IRS will recognize the ฿ to $ conversion...

Not only do they not have to because of the nature of bitcoin but it wouldn't be advisable since technically they're breaking the law by gambling online. I guess in theory the IRS could audit you and when they found out that you bought bitcoins (because of paypal and/or bank/credit card records) they could ask you why you bought them and what you did with them but it's not like they could do anything beyond that.

Even if they could threaten to punish you for not revealing what you did with your bitcoin balance you could just show them a wallet with the full amount (if you won and cashed out) or less and a good story (if you lost) about how you spent them on something legal but untraceable (software for example) and leave it at that.

I wonder how long will this go before the U.S government decides to intervene for "the sake of all of us" a.k.a protecting the interests of a few (not that I believe that gambling is a fair business model anyway)

If you mean that US based earners don't have to claim gambling winnings on their tax forms because they are in bitcoin, you are mistaken.

What I'm saying is that there are numerous downsides to trying to claim gambling winnings in bitcoin but there is very little downside to not claiming it. If you are audited then claiming it as misc. income (the only conceivable way you could claim illegal income since no company providing an illegal service is going to give you a form saying where you got the money) is no better than saying that you made a profit in another currency but won't explain it.

So my point is, that if you want to be a moral hardliner then try to claim your winnings but it's the illogical and somewhat decision to try to claim illegal profits of any sort when there's less chance of getting caught by not claiming them.

Makes sense. Getting bitcoins in the first place is kind of a gamble, you are betting they are still going to be worth something in the future. So naturally people with bitcoins are people who are more willing to gamble than the average person, and perhaps not as attached to their money (intangible as it is) as people with cash.

So my point is, that if you want to be a moral hardliner then try to claim your winnings but it's the illogical and somewhat decision to try to claim illegal profits of any sort when there's less chance of getting caught by not claiming them.

Gambling in Bitcoin is not illegal. And paying taxes on illegal profits doesn't require you to disclose where you got them (5th).

Gambling in Bitcoin is not illegal. And paying taxes on illegal profits doesn't require you to disclose where you got them (5th).

If you are a resident of the US all online gambling is illegal regardless of whether you do it in US currency or in bitcoins. You're right that you don't have to say where you got your profits from but what do you gain by declaring it? Whether you declare it or not if you get audited over it then it'll be tough to explain. That in comparison to "legitimate" income where you declare it because the penalty for not declaring it outweighs the tax that you pay by following the law.

Bitcoin or any derivative that comes out from it as in digital currency will only grow stronger. Looks like many here are quite annoyed and confused on bitcoin and however people like to do with them. Let's not forget there is no law on declaring taxes at all in this country. The IRS is a giant parasite made by the elites and falsley declare the requirements of declaring taxes.

Gambling in Bitcoin is not illegal. And paying taxes on illegal profits doesn't require you to disclose where you got them (5th).

If you are a resident of the US all online gambling is illegal regardless of whether you do it in US currency or in bitcoins. You're right that you don't have to say where you got your profits from but what do you gain by declaring it? Whether you declare it or not if you get audited over it then it'll be tough to explain. That in comparison to "legitimate" income where you declare it because the penalty for not declaring it outweighs the tax that you pay by following the law.

Wait, so PokerStars.com and all it's similar sites are illegal? I'm perhaps misunderstanding.

To be worth $500,000, you would have to be able to cash out. Most of the fluidity in the BTC exchanges are false buy walls put up by the exchanges themselves in order to falsify a fluid and active market. They would be lucky to get $10,000 before they crashed the market trying to liquidate that many BTCs. Try to be a little more honest next time you prop up an internet gift certificate.

Probably when they look at your bank records and notice all the wire transfers to Magic the Gathering Online Exchange. (MtGox) that's a pretty big red flag, and by the design of the product, sets you up for a laundering investigation. Outside of petty laundering, BTC's primary uses are for buying drugs on Silk Road and for purchasing child porn, so being audited is just the start of a slew of investigations into your online behavior.

Plus if anybody was interested, the entire blockchain is auditable by anybody with a web browser, and if anybody thinks MtGox wouldn't lie down to a tax or regulatory body in order to keep their business running, they're lying to themselves.

Probably when they look at your bank records and notice all the wire transfers to Magic the Gathering Online Exchange. (MtGox) that's a pretty big red flag, and by the design of the product, sets you up for a laundering investigation. Outside of petty laundering, BTC's primary uses are for buying drugs on Silk Road and for purchasing child porn, so being audited is just the start of a slew of investigations into your online behavior.

Plus if anybody was interested, the entire blockchain is auditable by anybody with a web browser, and if anybody thinks MtGox wouldn't lie down to a tax or regulatory body in order to keep their business running, they're lying to themselves.

You are very clearly mistaken on Bitcoin. I would like to see you try and "audit" someone using the blockchain... if they haven even the slightest technical skill you would be completely inept in tracing them.

And Bitcoins are not "primarily used for drugs and child porn" but nice of you to perpetuate rumors you heard on CNN. It's amazing how antagonistic people are to a currency that is not blessed by the government.

To be worth $500,000, you would have to be able to cash out. Most of the fluidity in the BTC exchanges are false buy walls put up by the exchanges themselves in order to falsify a fluid and active market. They would be lucky to get $10,000 before they crashed the market trying to liquidate that many BTCs. Try to be a little more honest next time you prop up an internet gift certificate.

The New York Stock Exchange (most trading exchanges for that matter) have this practice in order to maintain the liquidity of their product. The in house traders who do this are called "Market Makers".

In the International Currency Markets the Market Makers are called Central Banks

One thing I hear all the time is "Bitcoins questionable legality." There is no questions about it - it is legal. What is questionable is if some governments will decide to call it a threat and pass laws that make it illegal.

The Bitcoin system is nothing more than an account book in arbitrary units. It has many copies distributed, and cryptographic security, so it is difficult to fake or tamper with the account entries. An entry in the account book just moves a balance from one account to another. Aside from the fact that it is done using computers, that is all there is to it.

You could in theory run the same kind of system among friends using a paper spreadsheet, except paper could be tampered with, get stolen, burn in a fire, etc. The electronic version doesn't suffer from these hazards, and the people who use it don't have to be friends, or ever meet. That makes it useful as a worldwide accounting system.

To make Bitcoin illegal, you have to say how it is different than the banking system, which also uses transactions to move balances from one account to another. The arbitrary units are called "dollars" or "euros", but they were made up by people, not nature. They also mostly exist as electronic data. So how is national currency different than bitcoin?

Online gambling isn't illegal, it is illegal for gambling sites to knowingly accept funds from a place where gambling is illegal. The nature of bitcoin blows a giant grey area into this law.

It's really weird, in these bitcoin comment threads. It seems like normally intelligent guys refuse to face a disruptive technology, and just say negative things without making sure what they're saying is correct.

I hope that attitude goes away before everyone just gives in to paypal-alikes who can just cut you off from your money arbitrarily, with no accountability (or so it seems). Then I see the news, and I weep.

In context, the 28,986 paid out in 2012 by bitZino is miniscule. The worst bet in their casino apart from the stupid outside bets in craps is the roulette table which is European(single zero) which pays out 97.3% of bets on average. So for the sake of the exercise assume that all 28,986 was paid out on roulette:

28986 / 97.3 * 100 = 29790

That suggests that unless they were abnormally lucky they probably pulled in net revenue of less than 800 bitcoins (the other games have better RTP than 97.3%) which is about $13600 at $17 per bitcoin. Its no surprise that they are not profitable when you consider development, hosting, and staff expenses. However these costs could be quite low in the long run as by the looks of the site, its entirely possible that the guy is running the site from his basement.

SatoshiDice is hammering the Bitcoin network by flooding it with transactions and is responsible for more than 50% of daily volume on the Bitcoin blockchain. It's this and the cap of 21 million unique coins in circulation that make me dubious of Bitcoins long term growth.

I think the really interesting story with Satoshi Dice is how it demonstrates a way to carry out incredibly low cost microtransactions using Bitcoin. Since they accept and pay out on unconfirmed transactions, they have put a lot of work into their secret sauce that prevents a variety of double spending and related attacks.

This is sort of stuff a digital download service, vending machine operator, or retailer ought to find thrilling. The bitcoin apps for Android are some of the most mature mobile payment apps out there that support NFC, and at least two servicable mobile web apps for iOS the only thing preventing Bitcoin from rivaling Square or Google Wallet in the mobile payments industry is point of sale hardware. Bitpay, the payment processor for WordPress has the bitcoins to dollars side of the equation that businesses need.

The grey market for gambling and related services is probably going to persist, but I think the Bitcoin blackmarket is going to shrink gradually as people find ways to use this system for more and more innovative purposes

This is sort of stuff a digital download service, vending machine operator, or retailer ought to find thrilling.

Indeed. CoinDL is a digital downloads marketplace that operates only on Bitcoin and with zero confirmations. You can send bitcoins to pay for an item and literally seconds later a download link appears like magic!

One ofSatoshi Dice's key innovations was to include the customer's bet in the payout. So if the customer double-spends, their winnings will be made invalid at the same time their bet is.

Gambling in Bitcoin is not illegal. And paying taxes on illegal profits doesn't require you to disclose where you got them (5th).

If you are a resident of the US all online gambling is illegal regardless of whether you do it in US currency or in bitcoins. You're right that you don't have to say where you got your profits from but what do you gain by declaring it? Whether you declare it or not if you get audited over it then it'll be tough to explain. That in comparison to "legitimate" income where you declare it because the penalty for not declaring it outweighs the tax that you pay by following the law.

Wait, so PokerStars.com and all it's similar sites are illegal? I'm perhaps misunderstanding.

The site itself isn't illegal (unless it markets directly to US customers, which they were fined for iirc), but it's illegal for people in the US to use it to play poker on the real money tables

Wait, so PokerStars.com and all it's similar sites are illegal? I'm perhaps misunderstanding.

The site itself isn't illegal (unless it markets directly to US customers, which they were fined for iirc), but it's illegal for people in the US to use it to play poker on the real money tables

Wrong. The site is neither illegal, nor is it illegal for US customers to play there except for those in certain individual states that have their own laws explicitly banning online poker.

What is illegal under the UIGEA law are transactions made to and from "unlawful online gambling sites". The idea was to make it impossible to transfer money to and from a site, effectively killing it. However no-one knows what an "unlawful online gambling site" is because there is no law anywhere that specifies what it is. Recently the US justice department clarified that the old Wire Act designed to combat interstate sports betting over the phone does not apply to online gambling. So its as clear as mud but one thing is for sure, despite the popular misconception fueled by politicians that make false statements, there is no Federal US law that says that playing poker or casino games online is illegal.

As for Pokerstars and Full Tilt etc being fined, they settled after facing civil money laundering charges. They were not fined for running an illegal gambling site. The money laundering is a result of their use of intermediary payment processing companies that disguise payments as other types of non gambling transactions. This is because credit card companies and banks won't process gambling transaction to Americans because of the UIGEA law. So in a roundabout way that law while nonsensical and ill-defined has the side effect of forcing the sites to break other laws in order to do business.

One thing I hear all the time is "Bitcoins questionable legality." There is no questions about it - it is legal. What is questionable is if some governments will decide to call it a threat and pass laws that make it illegal.

There will be laws passed about it if and when it drifts up into the radar. What will they be? One hopes that they will limited to the kind where a business registered for tax purposes will have to log their payment addresses with the tax office. That might make it's anonymity somewhat more pseudo, though.

Bitcoin promoters are likely to push this as the main threat to Bitcoin in order to make BC seem subversive in some way. It isn't because making Bitcoin illegal would require law requiring particular characteristics of Bitcoin trade to become illegal, which would affect a great number of other legitimate contract types. Tax evasion is already illegal, and BC transactions are harder to hide than many people imagine.

SatoshiDice is hammering the Bitcoin network by flooding it with transactions and is responsible for more than 50% of daily volume on the Bitcoin blockchain. It's this and the cap of 21 million unique coins in circulation that make me dubious of Bitcoins long term growth.

It's good they are hammering the system, it must continually be tested so it can scale. The 21 million cap is not an issue since bit coins can be divided into millionths (and even further) of a coin.

No one in their sane mind sould trust online casinos. Games are based on pseudorandom number generator and algorithmns, and you rely on their honesty for fairness (alas there are only a few fair games as most have house advantage). They can introduce a 1% statistical bias for all you know, virtually undetectable but would mean tens of thousands extra profit for them.